MUMBAI: Indian government bonds gained slightly on Thursday before inflation data in both the U.S. and India.
The yield on the 10-year benchmark note slipped to 6.4666%, from the previous close of 6.4790%.
India’s consumer price inflation, due on Friday, is expected to have accelerated to 2.1% in August due to a fading “base effect” and rising food prices, according to a Reuters poll, compared to an 8-year low of 1.55% in July.
The country’s central bank, which aims to keep inflation in a 2%-6% tolerance band, has cut rates by 100 basis pointsso far this year but held them steady at its last meeting.
A moderate upcoming inflation print might not be enough to raise bets on another rate cut, traders said, with the focus instead on any forecast revisions from Reserve Bank of India.
“The central bank’s rate cut path will depend on its outlook on inflation in Q4 FY26 and Q1 FY27,” said Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank, “Current projection from RBI doesn’t leave scope for lowering rates.”
Lower inflation in the U.S. could buttress market positioning for a Federal Reserve rate cut, probably making room for the RBI to follow suit, traders said.
U.S retail inflation for August is due after Indian market hours on Thursday. A Reuters poll predicts inflation at 2.9% year-on-year against 2.7% in the previous month.
Traders also await details of India’s second-half borrowing, expected later this month, amid hopes that New Delhi will lower the supply of long-dated papers.
The government is due to auction 280 billion rupees ($3.18 billion) worth of bonds on Friday.
Rates
India’s overnight index swaps dipped ahead of the U.S. inflation print, which could increase bets of a Fed rate cut.
The one-year OIS rate was at 5.455%, while the two-year OIS rate ended at 5.4375%.
The liquid five-year OIS rate settled at 5.68%.
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